COOL The Canadian Perspective

Canadian producers remain puzzled about why U.S. politicians seem so intent on implementing regulations that are expected to be damaging to their own producers and packers.

Lorne McClinton | May 15, 2003

Canadian producers remain puzzled about why U.S. politicians seem so intent on implementing regulations that are expected to be damaging to their own producers and packers.

Canadian producers were caught almost completely off guard when mandatory country-of-origin labeling (COOL) requirements for meat products were written into the 2002 U.S. farm bill.

Since approximately one-third of all pigs born in Canada end up in the U.S. as weaner/feeder pigs or chilled or frozen pork, the potential impact on Canada's hog industry is massive.

“COOL is all about impeding trade,” states Kevin Grier, co-author of “Impacts of U.S. Country-of-Origin Labeling on U.S. Hog Producers,” a joint study by Grier at The George Morris Centre in Guelph, Ontario, and David M. Kohl at Virginia Polytechnic Institute (VPI) and State University, Blacksburg, VA.

“If COOL is successful at disrupting the supply of Canadian hogs into the U.S., there will be fallout,” Grier adds.

Coffee shop discussion in Canada likens COOL to the Canadian gun registry. Even though this unpopular program has now cost taxpayers a billion dollars more than originally estimated, politicians are unwilling to admit that mistakes were made.

COOL Fallout

The George Morris Centre/VPI study showed that COOL would place at least 1,000 small, independent U.S. farms that depend on Canadian wean-lings at risk.

If the 5.3 million Canadian hogs and pigs annually moved to the U.S. were blocked, a short-term shortage would be created. But, large, integrated pork operations will likely fill the shortfall within a few years, the study states.

Under COOL, Canadian production would drop slightly. Hogs currently shipped to the States would largely be finished in Canada.

Grier and Kohl's study shows the net impact would mean 4 million more hogs in North America. As a result, hog prices would drop to levels 30% lower than if COOL were not implemented, they predict.

The study further states that up to five U.S. packing plants that process Canadian-born hogs could disappear along with 4,500 direct packing plant jobs. Another 8,000 jobs downstream are also put at risk. Overall, economic losses could mount to $4 billion.

“The worst part of the legislation is the live animal provisions (stating) animals have to be born, raised and slaughtered in the U.S. to qualify as a ‘product of the USA,’” says Martin Rice of the Canadian Pork Council.

“The legislation is definitely going to affect the competitive balance between red meat and poultry, since poultry isn't affected by the legislation,” he adds.

Pinching Canadian Producers

If U.S. packers reject Canadian-born pigs under COOL, the Canadian farms supplying weaners will feel the greatest impact.

An earlier study by Grier, commissioned by the Manitoba Pork Producers, states that under the worst-case scenario, 450 Canadian hog barns representing $350 million of income would disappear. Factoring in the additional loss of markets for 250,000 acres of grain, up to 1,000 Canadian farmers could face bankruptcy, he says.

U.S. farmers import at least 3 million weaners from Canada annually. Grier's study showed that if COOL regulations destroy this market, Canadian barns would be flooded while American barns would be starving for pigs. Weaners would become essentially worthless in Canada until roughly one million extra feeder spaces are built to accommodate the extra supply.

Processing the extra pigs in Canada wouldn't be a problem, however. With all the improvements and expansion to hog packing facilities over the past few years, Grier estimates that all of the live Canadian hogs currently exported to the U.S. could be processed if the plants started running second shifts.

However, there is widespread concern among Canadian producers that packers would take advantage of their now-captive suppliers by reducing prices. New pricing mechanisms that don't depend on U.S. hog cash or futures markets would have to be developed.

Rice says Canadian producers have always viewed the U.S. market as an alternative that helps ensure buyers make the maximum effort to buy their pigs for the top dollar.

“Most Canadian producers have always preferred to sell to Canadian packers to keep the value-added spinoffs in Canada,” explains Rice. “Ninety percent of all slaughter (weight) hogs are now processed in Canada. There are less shipping problems and less risk of border problems.”

The 5.3 million Canadian-born animals slaughtered in the U.S. in 2001 accounted for 6% of the total U.S. hog slaughter. Had those pigs been slaughtered in Canada, packers would have had to find markets for an additional 400,000 metric tons of pork.

Rice believes that, ironically, COOL may help Canadian-processed hogs capture a larger share of American supermarket shelf space. “There are definitely opportunities for Canadian packers to sell case-ready Canadian pork and beef to U.S. retailers,” he says.

“As far as we can see, there will likely be no extra costs for Americans handling Canadian pork,” Grier says. “Customs documentation that is already in existence will suffice to prove country of origin.”

Consequently, Canadians will avoid the significant costs that COOL places on American pork and beef producers and packers. While U.S. hogs will require an elaborate, birth-to-barbecue tracking system, Canadians will be able to market case-ready pork in supermarkets with just documentation from U.S. Customs indicating it is a “product of Canada.”

Since American consumers already associate Canadian pork with quality, it should be possible to build a strong “Canadian Pork” brand similar to the one currently enjoyed by New Zealand lamb, says Rice.

Pork Export Leader

Canada is the world's second largest pork exporting nation, with 50% of its domestic pork production sold abroad. While half of these exports currently go to U.S. customers, Canadian packers have developed expertise in delivering large quantities of high-quality, fresh, chilled and frozen pork to customers around the world.

Canada Promotes Pork Brand to Japan

To the Japanese, Canada means pristine forests, mountains, lakes, skiing, Canadian Mounties and Anne of Green Gables, a fictional book character who has become almost a national icon in Japan.

Canada isn't thought of as a major supplier of safe, high-quality pork, however. If Jacques Pomerleau and others at Canada Pork International (CPI) have anything to say about it, that will soon change.

Japan is an increasingly important customer for Canadian pork as the industry tries to lessen its dependence on the U.S. market. Canada exported 913,000 tons of pork in 2002 (up from 880,000 tons in 2001) according to Canadian Food Inspection Agency figures. Japan is CPI's greatest success, as approximately 24% of Canadian pork went to Japan and another 47% to the U.S. This is a dramatic change from the early 1990s, when about 80% of the much smaller volume of Canadian pork exports went to the U.S.

Japan implemented country-of-origin label (COOL) regulations in April 2002 when a case of mad cow disease was discovered in Japan. Beef consumption dropped dramatically. In an effort to support Japanese beef producers, the government implemented a program to buy back excess beef from the marketplace. Since beef could not easily be traced, unscrupulous companies defrauded the program by labeling imported beef as Japanese. When the deception was discovered, the ensuing scandal bankrupted several of the offending companies and forced the government to implement COOL legislation to prevent it from happening again.

Regulations do not specifically require country-of-origin labeling — only that it be labeled as “imported.” However, both Canada and the U.S. want to promote their national brand so they use country-of-origin labels, Pomerleau says.

Prior to implementing COOL, Canadian products had a hard time developing an independent identity. When new country-of-origin labels came into place, the Canadians decided to openly promote their origin.

“Country of origin in Japan may turn out to be a very good thing for Canadians in the long term, but in the short term it requires changing the buying habits of the Japanese retailers,” Pomerleau says. “Retailers only want to promote just one imported brand. One retailer will only have Canadian products and the next will have an American one. Promoting one over the other is a difficult marketing job.”

Food safety is the Japanese consumer's greatest concern. High quality comes second. It isn't enough to say you are a reliable supplier of safe, high-quality food, you have to prove it

“That's why the Canadian Pork Council has developed a new Canadian quality assurance program,” Pomerleau says. “All Canadian packers now guarantee their chilled pork has at least a 55-day shelf life — very long for fresh pork.”

Canada's success at selling pork to Japan does come with risks. “Japan and the U.S. combined represent more than 70% of Canada's total exports,” Pomerleau explains. “We can't let ourselves continue to be so dependent on just these two markets. We have just completed opening up China. All our plants are approved, so now we can comply with China's new, very stringent labeling requirements.” — Lorne McClinton